15 July 2003 GST/HST Ruling 37706 - Site Leases in Recreational Park

Dear XXXXX:

This is in reply to a letter submitted on your behalf XXXXX in which a ruling is requested concerning the GST treatment of site leases in XXXXX Recreational Park ("the Park"). We apologize for the delay in responding.

All references are to the Excise Tax Act ("ETA").

The following facts are based on XXXXX submission (including samples of seasonal rental agreements, photocopied photographs, site plan and events calendar), your telephone conversations with XXXXX, and our telephone conversations XXXXX.

Statement of Facts

1. XXXXX (The Company), a GST/HST registrant, owns and operates the Park, a recreational vehicle park XXXXX.

2. The Park consists of XXXXX immediately contiguous sites as well as private roads, common facilities and buildings. These include a pool, horseshoe pits, recreation centre, washrooms and shower, laundry facilities, tennis courts, children's play area, boat launch, docks, boat storage area, general store, office and garage.

3. A fenced, XXXXX square-foot house is located within the Park. The house is occasionally rented on a short-term basis for consideration greater than $20 per day of occupancy but is used predominantly by users of the Park for personal and social functions. There is year-round water service to the house.

4. A Company-owned mobile home is situated in the Park which is exclusively supplied by way of lease, license or similar arrangement for continuous periods of 60 days or more to a Company employee who uses it as a place of residence. The Company-owned mobile home is physically attached to the subjacent land by a concrete foundation and is equipped with the facilities described in point 7 below.

Seasonal sites

5. Of the XXXXX sites in the Park, XXXXX are strictly dedicated for seasonal lease (the "seasonal sites").

6. The use of a seasonal site is subject to a lease agreement that is valid from XXXXX (the "summer season") of the relevant year.

7. Each seasonal site is equipped with hydro, water, sewage, propane, cable and telephone facilities. These facilities are available year-round with the exception of water.

8. The water system that services the sites is shut off and drained at the end of the summer season. The system's distribution pipes are positioned approximately one foot underground and may rupture if utilized during winter months.

9. A separate, lake-fed water system serves the house, washrooms, shower and laundry facilities and remains operational during winter months.

10. During the summer season, all of the seasonal sites are occupied by park model trailers ("PMTs") and a small number of mobile homes [(as that term is defined in subsection 123(1) (Under section 123(1), a "mobile home" is defined as "... a building, the manufacture and assembly of which is completed or substantially completed, that is equipped with complete plumbing, electrical and heating facilities and that is designed to be moved to a site for installation on a foundation and connection to service facilities and to be occupied as a place of residence, but does not include any travel trailer, motor home, camping trailer or other vehicle or trailer designed for recreational use ...")].

11. The PMTs are recreational vehicles designed to provide temporary living quarters for travel, camping, or seasonal use.

12. Many of the PMTs and all of the mobile homes have had their wheels removed, rest on concrete blocks and have had porches and wooden skirting added to them. The PMTs have not otherwise been modified and can be prepared for removal in 4 to 5 hours.

13. Lessees of seasonal sites generally use their sites as full-time residences during the summer season.

14. For a small additional fee, a seasonal lessee may lease their site from the end of the summer season XXXXX of each year (hereafter the "winter season").

15. In XXXXX, XXXXX of the XXXXX seasonal lessees removed their PMT from the Park for the winter season. The remaining lessees have regularly paid the additional fee and have kept their PMT or mobile home on their sites since you acquired the Company XXXXX.

16. You estimate that a maximum of XXXXX lessees occupy their PMTs or mobile homes at any given time during the winter season.

17. All roads within the Park are plowed in the winter months to ensure the lessees access to their sites as they see fit.

The remaining sites

18. Of the remaining XXXXX sites, XXXXX are designated for short term rental (the "short term sites").

19. Although the short term sites are available for seasonal lease upon request, they have been exclusively leased for continuous periods of less than a month.

20. The short term sites are located in various areas of the Park that are generally less desirable than the seasonal sites.

21. The short term sites are equipped with the same facilities as described in point 7 above.

22. The short term sites remain empty throughout the winter season.

23. XXXXX additional sites are occupied by Company-owned park model trailers (the Company PMTs") that are leased for continuous periods of less than a month.

24. The Company PMTs are not permanently affixed to their sites: they rest on blocks and are moveable if necessary. The sites are equipped with the same facilities as described in point 7 above. They remain vacant during the winter season.

Ruling Requested

You wish to know whether the above-described leases are taxable or exempt from the GST.

Rulings Given

Based on the facts as stated we rule that:

1. leases of the XXXXX seasonal sites, whether occupied by a PMT or a mobile home, are exempt from the GST;

2. leases of the XXXXX short term sites are subject to the GST;

3. short term leases of the Company PMTs are subject to the GST;

4. the lease of the Company-owned mobile home is exempt from the GST; and

5. rentals of the house for short term residential and recreational purposes are subject to the GST.

These rulings are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by these rulings provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

1. Seasonal Sites

Supplies, including leases, of real property are subject to GST unless specifically exempt. In the present case, the tax status of the above leases is contingent on the application of 7(b) of Part I of Schedule V, which exempts certain supplies of land situated in a residential trailer park. Specifically, it exempts the following:

"A supply ... of a site in a residential trailer park made, under a lease, licence or similar arrangement which provides for continuous possession or use of the site for a period of at least one month, to the owner, lessee or person in occupation or possession of

(i) a mobile home, or

(ii) a travel trailer, motor home or similar vehicle or trailer, situated or to be situated on the site"

Therefore, whether paragraph 7(b) applies to any of the subject leases depends on whether the Park is a residential trailer park for GST purposes. A "residential trailer park" of a person is defined in subsection 123(1) as:

"... the land that is included in a trailer park of the person or, where the person has two or more trailer parks that are immediately contiguous to each other, the land that is included in those contiguous trailer parks, and any buildings, fixtures and other appurtenances to the land that are reasonably necessary for

(a) the use and enjoyment of sites in the trailer parks by individuals residing in or occupying mobile homes, or travel trailers, motor homes or similar vehicles or trailers, situated or to be situated on those sites, or

(b) the purpose of engaging in the business of supplying those sites by way of lease, license or similar arrangement, but does not include such land and appurtenances or any part of them unless the land encompasses at least two sites and all or substantially all of the sites in the trailer parks

(c) are supplied, or are intended to be supplied, under a lease, license or similar arrangement under which continuous possession or use of a site is provided for a period of at least

(i) one month, in the case of a mobile home or other residential unit, and

(ii) twelve months, in the case of a travel trailer, motor home or similar vehicle or trailer that is not a residential unit, and

(d) if the sites were occupied by mobile homes, would be suitable for use by individuals as places of residence throughout the year ..."

For purposes of this definition, a "trailer park" of a person is defined in subsection 123(1) as a piece of land that is owned by or leased to the person and that is exclusively composed of:

(a) one or more sites each of which is, or is intended to be, supplied by the person by way of lease, licence or similar arrangement to the owner, lessee or person in occupation or possession of a mobile home, or a travel trailer, motor home or similar vehicle or trailer, situated or to be situated on the site, and

(b) other land that is reasonably necessary for

(i) the use and enjoyment of the sites by individuals residing in or occupying mobile homes, or travel trailers, motor homes or similar vehicles or trailers, situated or to be situated on those sites, or

(ii) the purpose of engaging in the business of supplying the sites by way of lease, licence or similar arrangement

Trailer park

Given the facts, the land within the Park qualifies as a "trailer park" as the supplies of all XXXXX sites are described by paragraph (a) of that definition. Further, we view the land encompassing the common facilities and buildings described in point 2 in the statement of facts as being reasonably necessary for the purposes described in subparagraphs (b)(i) and b(ii).

Residential trailer park

The facts indicate that the buildings, fixtures and other appurtenances to the land forming the Park are reasonably necessary for the purposes described in paragraphs (a) and (b) of the definition of "residential trailer park". Paragraph (c) of the definition requires that substantially all of the sites in the Park be leased for a period of at least one month in the case of mobile homes and other residential units and twelve months in the case of travel trailers, motor homes or similar structures. Whether these conditions are met requires additional analysis.

Paragraph (c)

Subparagraph (c)(i) of the definition requires a lease period of at least one month, in the case of a mobile home or a residential unit that is not a mobile home. For this purpose, subsection 123(1) defines the term "residential unit" to include a mobile home or similar premises that is occupied by an individual as a place of residence or lodging or that is supplied by way of lease for its occupancy as a place of residence or lodging for individuals. Accordingly, the mobile homes in the Park are "residential units" by definition.

On the other hand, we do not generally regard unmodified park model trailers as residential units. However, a park model trailer may qualify as a "residential unit" under CCRA Policy Statement P-104, Meaning Of 'Mobile Home', 'Residential Unit' And 'Residential Complex' In The Context Of Mini-Homes, Park Model Trailers, Travel Trailers And Motor Homes (enclosed). The policy statement indicates that if a park model trailer is used for residential purposes and is in fact permanently affixed to land in the same manner as a house, it may qualify as a "residential unit".

Under the circumstances, it is our view that the PMTs are not residential units; rather, the facts indicate that they are unmodified recreational vehicles that may be readily removed from their blocks and disconnected from the site utilities. Accordingly, the PMTs lack the permanency with the subjacent land that is required by P-104. We do not consider the addition of skirting and porches to the PMTs as conferring the requisite degree of permanence with sites for purposes of the policy.

Although the PMTs are not described by subparagraph (c)(i) of the definition, they are nevertheless described by subparagraph (c)(ii), which requires that continuous possession or use of a site occupied by a travel trailer, motor home or similar vehicle or trailer that is not a residential unit be at least twelve months.

The facts state that XXXXX of the seasonal lessees who possess either park model trailers or mobile homes retain possession of their respective seasonal sites from XXXXX by entering into tandem agreements for the summer and winter seasons. Under the agreements, these lessees have continuous possession of their respective sites for a continuous period of twelve months. Accordingly, the XXXXX lessees will have satisfied the conditions of either subparagraph (c)(i) or (c)(ii), depending on whether a particular site is occupied by a mobile home or park model trailer.

Note that we interpret the reference to "all or substantially all" in the definition to generally mean 90% or more. In this case, we have determined that 129 of 144 sites in the Park meet the requirements of either subparagraph (c)(i) or (c)(ii), which is an acceptable number for purposes of this ruling.

Paragraph (d)

Paragraph (d) of the definition indicates that the Park would not qualify as a residential trailer park unless all or substantially all of the sites are suitable for use by occupants of a mobile home (whether or not a particular site is actually occupied by one) as a place of residence throughout the year.

The facts indicate that all sites in the Park have the facilities that would make them suitable throughout the year for purposes of paragraph (d). Although water may not be made directly available to the sites throughout the winter season, it is our opinion that the washrooms and water facilities available in the house, in combination with the other services that remain directly available to the sites throughout the year, are sufficient to view the sites as being suitable for purposes of paragraph (d).

As all the conditions of the definition are met, the Park qualifies as a "residential trailer park".

Paragraph 7(b) of Part I of Schedule V

Returning to the exempting provisions of paragraph 7(b) above, since the Park qualifies as a residential trailer park, the leases of all XXXXX of the seasonal sites will be exempt from the GST since they are occupied by either mobile homes or park model trailers for a continuous period of at least one month.

2. Short term sites

Although the Park qualifies as a residential trailer park, the above exemption in 7(b) is not applicable if the lease of a site does not provide for continuous possession for a period of at least one month. Since the short term sites are leased for periods of less than a month, paragraph 7(b) does not apply to exempt them. As there are no other applicable exceptions, leases of the short term sites are taxable.

3. Leases of the Company PMTs

Paragraph 7(b) of Part I of Schedule V to the ETA is not relevant in determining the GST status of the leases of the Company PMTs since it applies to leases, licenses or similar arrangements in respect of a site in a residential trailer park. In the present case, the Company is leasing a park model trailer that is located on a site in the Park.

Paragraph 6(a) of Part I of Schedule V provides an exemption for certain leases of a residential complex or residential unit within a residential complex. To qualify for exemption under this provision, the Company PMTs would first have to meet the definition of "residential unit". As in the case of the seasonal PMTs (see page 6), the Company PMTs do not qualify as residential units as they are unmodified recreational vehicles that may be readily removed from their sites. Accordingly, they lack the permanency with the subjacent land that is required by P-104; therefore, they do not qualify as residential units. The exemption in 6(a) is therefore not applicable to the Company PMTs. Since there are no other relevant exempting provisions, the leases are taxable.

4. Leases of the Company-owned mobile home

Pursuant to paragraph 6(a) of Part I of Schedule V, a supply of a residential complex by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual is exempt where the period throughout which continuous occupancy of the complex is given to the same individual under the arrangement is at least one month.

Given that the Company-owned mobile home is supplied to an employee by way of lease, licence or similar arrangement for continuous periods of at least a month, and that the employee occupies it as a place of residence, the supply will be exempt under paragraph 6(a) as long as it qualifies as a "residential complex".

A residential complex is defined in subsection 123(1) to include a mobile home. The Company-owned mobile home would be excluded from the definition if it were a hotel, a motel, an inn, a boarding house, a lodging house or other similar premises where 90% of the leases or similar arrangements were for periods of continuous possession or use of less than 60 days; however, the facts indicate that this is not the case. The Company-owned mobile home is therefore a residential complex and the leases or similar arrangements in respect thereof are exempt pursuant to paragraph 6(a) above.

5. Rentals of the house

Under the circumstances, the house does not qualify as a "residential complex" as we would consider it to be a hotel, motel, lodging house or similar premises whose leases, licenses or similar arrangements are for continuous periods of less than 60 days. Since it is not a residential complex, the exemption contained in paragraph 6(a) of Part I of Schedule V is not applicable. As there are no other relevant exemptions in the circumstances, the short-term leases of the house are subject to the GST. Rentals of the house for recreational use is similarly taxable.

Additional Information

Self supply

Please note that a person who first supplies a site in a residential trailer park on an exempt basis is deemed, under subsection 190(4), to have made and received a supply by way of sale of the entire residential trailer park. The person is deemed to have paid and collected tax calculated on the fair market value of the entire park at the time the person first gives possession or occupancy of the site to the recipient of the exempt supply. Paragraphs 59 to 63 of enclosed GST/HST Memoranda Series section 19.2.3, Residential Real Property — Deemed Supplies provides further information.

Input tax credits ("ITCs")

As you are aware, a recipient that is a GST/HST registrant is generally entitled, pursuant to subsection 169(1), to claim ITCs for tax paid or payable on property and services to the extent (expressed as a percentage) that the property or service is acquired or imported for consumption, use or supply in the course of the recipient's commercial activities. A "commercial activity" is defined in the ETA to include a business carried on by the person, except to the extent to which the business involves the making of exempt supplies by the person. Accordingly, no ITCs would be available to the Company in respect of tax paid on property or services acquired for consumption, use or supply in its exempt activities.

However, the Company would be able to claim ITCs for any inputs that relate directly to the making of taxable supplies. If the Company wished to also claim partial ITCs s in respect of the Park as a whole, it should be able to calculate in a reasonable manner the percentage for which the inputs were used in commercial activity, pursuant to paragraph 169(1)(c). Note however, that if a particular input is used at least 90% of the time in making exempt supplies, the Company would not be able to claim any ITCs for the tax paid on the input, pursuant to subsection 141(4).

We trust that the above will be of assistance. Should you have any further questions or require clarification on the above or any other GST or Harmonized Sales Tax matter, please do not hesitate to contact me at (613) 952-8816.

Yours Truly

Paul Hawtin
Rulings Officer
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate